if you had a huge profit margin for the whole economy, capitalism being what it is,
you would want to multiply it by a low P/E because you know high returns will suck in competition, more capital, and bid down the returns (conversely at the low end). But what actually happens? Instead of having a correlation of −1, our research shows it has a correlation of +.32. The market can’t even get the sign right! High profi t margins receive high P/Es and vice versa, and the correlation is much greater than +.32 at the peaks and the troughs Part 2: On the Importance of Asset Class Bubbles for
Value Investors and Why They Occur
Jeremy Grantham
PS i liked this link
http://www.youtube.com/watch?v=GxplDa3M5Io&feature=player_embedded#
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